From: W. Scott Greco
June 24, 2005
Ms. Margaret H. McFarland
Re: File # SR-NASD-2003-158
Dear Ms. McFarland:
I am writing to comment on the proposed changes to the NASD Code of Arbitration Procedure. I am a practicing attorney in McLean, Virginia and the large majority of my practice consists of representing individuals in NASD arbitrations against Broker-Dealers and Registered Representatives.
My comments on the proposed changes are as follows:
1. Rule 12403 – Separate Chair list of arbitrators. I am opposed to creating a separate list of public arbitrators to serve as Chair of the arbitration panel. My concern is that this list will consist primarily of “professional arbitrators” who rely upon arbitration work to make a living or to supplement their retirement. Such arbitrators would therefore be concerned about being appointed to future panels, and thus would not want to have a record of any significant decisions against Respondents which would prevent their future appointment. These professional arbitrators also move the process a step further away from a decision by a jury of peers in court which has been replaced by mandatory arbitration for investors.
2. Rule 12403 – Non-public (Industry) arbitrator. Although it is not an issue in the changes to the Code, I would like to express my continuing opposition to the mandatory inclusion of an industry arbitrator on all panels. Through mandatory arbitration individual investors are required to give up their right to a jury of their peers, and the replacement is a panel which includes a member of the industry opposing the individual investor’s claim. The built-in bias with such an industry arbitrator is fundamentally unfair to the individual investor. While the alleged purpose of the industry arbitrator is to include an “expert” on the panel, this can also result in an individual with a built-in bias unduly influencing the other public arbitrators who defer to the industry arbitrator on issues of standards in the industry. Furthermore, an “expert” on the panel is unnecessary in most cases where each side calls an expert witness to explain their position.
3. Rule 12404 – 5 strikes of list of 7 arbitrators. I support this change to the arbitrator appointment system, however I do not think it goes far enough. One of my greatest concerns with the prior system was the continuing re-occurrence of arbitrators being appointed to a panel off the initial list because Respondents chose to strike a large number or all of the arbitrators on the initial list. While the revised rule will help prevent this abuse, I believe if one side exercises all five strikes, there is a likelihood once again of no arbitrators being left on the list to be appointed. I therefore feel that a limit of 4 strikes would be more likely to eliminate this problem and result in a panel chosen by the parties, as opposed to appointed by the NASD.
4. Rules 12407 and 12410 – NASD appointment of arbitrators off-list. While the specifics set out in 12410 as a basis for an objection for cause to an arbitrator are an improvement, I believe that one peremptory strike per side (not per party since often there is more than one Respondent) would be appropriate in the case of an appointment of an arbitrator off the list. In addition, this peremptory strike could be denied to a party that used all of their strikes in regard to the list of arbitrators. Once again, this gives the parties control over the appointment of the panel rather than the NASD.
5. Rule 12312 – Multiple Claimants. My reading of Rule 12312 is that it would prevent the joinder of Claimants in one claim in certain situations resulting in added expense and repetitious hearings. For example, I recently filed a case in which seven Claimants joined in a claim against an individual broker and his firm. The Claimants all had the same broker and were invested similarly by the broker during the same time frame. By joining the claims, I was able to include some smaller claims that I may not have taken as a separate claim. The Claimants were also able to share costs, and if the case had not settled, they would not have been forced to try seven different hearings with the added expense and wasted time for everyone involved. I accordingly think the language of the rule should be broader and give the panel more discretion to join claims if it is beneficial from a cost and time perspective and not unreasonably prejudicial to the parties.
6. Rule 12512 – Subpoenas. I believe that the NASD Rules should not allow an attorney for a party to issue subpoenas to third parties without a time period for review and objection by the opposing party. This is an area in which I have personally experienced abuse by opposing counsel in the past, resulting in being forced to try and contact a third-party to prevent them from responding to the subpoena while trying to get a Motion to Quash to be heard by the arbitrators. A more appropriate approach would be to either require the arbitrators to issue any subpoenas, or require a notice period to the opposing parties prior to the issuance of the subpoenas.
I thank you for your time and consideration of these comments.
Very truly yours,
W. Scott Greco